WHY INVESTORSARE BETTER OFF INVESTING INFUNDS VS. DIRECT INVESTMENTS

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There’s been a recent surge in popularity for direct deals or direct investments into specific companies

- Frictions around manager fees - Alleged lackluster performanceWHY?

However, direct investing poses unique challenges and risks for investors which can be easily overlooked

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Growing Interest in Direct Investments

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Challenges of Direct Investing

#1. Deal Sourcing

In order to properly assess viability & investment worthiness of investments, it’s important to have some type of benchmark and sustainable deal flow

Most investors are not professional managers and advisors that spend the majority of their time performing research around an industry and connecting with deal pipelines

Therefore, investors looking for deal flow will be left with their own personal networks and introductions. Not the most effective methodology to create robust deal pipelines

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Challenges of Direct Investing

#2. Diversification

Similar to angel investing, direct growth stage private equity investments require a certain amount of diversification in order to be effective

Professional private equity money managers may take operational control of companies

However, individual investors likely to be left in a passive position in which the primary control is only over their own portfolio

On the opposite spectrum, investors that participate in managed funds can enjoy de facto diversification across multiple companies and assets

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Challenges of Direct Investing

#3. Professional Money Management

The best managers have their investors’ interests as their core motivation to do very well and have a loyal investor following

Depending on the investor’s expertise and risk profile, it may be better to allocate time and research into analyzing money managers as opposed to searching for standalone opportunities that will require significant resources and ongoing maintenance

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Conclusion

Top performers in the industry are consistently sought out by investors and respected for their investing acumen and know-how

As new developments in technology create greater transparency and informational efficiencies within the private markets, what we believe will change is the amount of information investors will demand from money managers

This in turn will have the effect of sinking less- than-excellent performers The top investing professionals are here to stay and will be sought out by investors of all types

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